May 4 (Bloomberg) -- American International Group Inc., the insurer majority owned by the U.S. Treasury Department after a 2008 bailout, said first-quarter profit more than doubled on gains from investments including its stake in AIA Group Ltd.
Net income climbed to $3.21 billion, or $1.71 a share, from $1.3 billion, or 31 cents, a year earlier, when the insurer booked charges related to paying back a Federal Reserve credit line, according to a statement yesterday from the New York-based company. Operating income, which excludes some investment results, was $1.65 a share, beating the $1.13 average estimate of 18 analysts surveyed by Bloomberg.
Chief Executive Officer Robert Benmosche, 67, has presided over a 47 percent surge in AIG’s share price this year, as the insurer retired obligations to the Treasury and bought back shares, helping cut the department’s stake to 70 percent. He is counting on results at the Chartis property-casualty division and SunAmerica life operation to attract private investors to replace government funds backing the insurer.
“Relatively little of AIG’s outperformance reflected improved earnings potential within core operations,” analysts at Stifel Nicolaus & Co. led by Meyer Shields said in a research note. “We believe the shares will trade down on Friday.”
AIG fell 39 cents to $33.75 at 6:15 p.m. in extended trading in New York yesterday. The Treasury needs to sell shares at an average of $28.72 to break even on the government’s investment.
The change in the fair value of AIA, the Hong Kong-based life insurer, added $1.8 billion to income including realized gains. AIG raised about $6 billion by selling part of its AIA holding on March 6. Benmosche’s company sold a majority stake in the insurer through a public offering in 2010 and retained a holding of about 19 percent after the offering in March.
AIA advanced 17 percent in the first quarter. The insurer, led by CEO Mark Tucker, sells coverage in nations including China, India and Australia.
Chartis posted pretax income of $910 million, compared with a loss of $374 million a year earlier. The division spent $1.02 for every premium dollar on claims and expenses, down from $1.19. Catastrophe costs fell to $80 million from about $1.7 billion a year earlier. The March 2011 earthquake and tsunami in Japan was the most costly disaster for insurers last year.
Sales at Chartis, which insures commercial property, corporate boards and airplanes, fell 3.8 percent to about $8.82 billion as the company said it sought to improve on risk selection.
Net unrealized gains on bonds available for sale widened to $16.2 billion from $13.2 billion three months earlier, led by mortgage-backed and corporate debt. The figures, reflecting market fluctuations that aren’t counted toward earnings, are monitored by investors and rating firms as a gauge of financial strength.
Shareholders’ equity, a measure of assets minus liabilities, was $57.68 per share as of March 31, compared with $53.53 at the end of December. AIG published revised financial reports for prior periods last month to account for new rules that stipulate which costs related to acquiring and renewing insurance contracts can be capitalized.
AIG said pretax profit at the U.S. life insurance and retirement-services division fell to $862 million from $967 million a year earlier. Premiums and other considerations declined about 13 percent to $5.6 billion.
A day after the latest AIA offering, the Treasury said it was selling $6 billion of its AIG shares and that the bailed-out insurer had agreed to purchase half the offering. The stock sold for $29 a share, the same price as in the government’s first offering, in 2011.
AIG also struck a deal in March to retire $8.5 billion of the Treasury’s interests in entities tied to the bailout. Part of the proceeds for that repayment came from the wind-down of a New York Fed-controlled fund called Maiden Lane II, which held mortgage-backed securities taken over in the rescue.
Another bailout fund, Maiden Lane III, holds mortgage investments that AIG had insured against losses. The New York Fed began divesting those assets last month in an auction. An increase in the value of AIG’s stake in Maiden Lane III contributed $1.25 billion to earnings.
Selling the rest of Maiden Lane III, the remaining stake in AIA and plane-leasing unit International Lease Finance Corp. could generate funds for AIG to buy back additional shares, Josh Shanker, an analyst Deutsche Bank AG, said in a March note to clients. He estimated that asset sales and distributions from subsidiaries could allow the company to repurchase $15 billion to $20 billion of stock in the next year.
AIG has sold non-U.S. life insurance operations, a consumer lender and other businesses to raise funds to pay back the government. In the first quarter of 2011, the insurer incurred a $3.3 billion pretax charge in retiring a Fed credit line. At the same time, the Treasury got 92 percent of the company’s common stock, after exchanging preferred shares. That holding has been cut through two share sales.
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